Economy Looms Large Over Obama's 2nd Term

NPR's business news starts with a dive on Wall Street. Just this minute, the Dow Jones Industrial Average is down about 317 points. It's considered the worst drop of the year, so far. We're a little bit before noon in New York City. What's going on? We're going to try to find out. We're joined now by DavidWessel, economics editor of The Wall Street Journal. And David, as best you can determine, what's driving the drop?

DAVID WESSEL: Well, it's really hard to figure out what the market does and why they do it. We know by looking at the individual stocks a few things. The energy stocks are falling and that suggests some fear of Obama-style regulation. They would have preferred Mitt Romney. Perhaps that's true of the banks, which are going - stocks which are falling as well.

And then, the health care stocks are down and that suggests that investors are not quite so happy about - well, I shouldn't say that. Some health care stocks are up that suggests the ones will benefit from Obamacare are doing well and some are down, the ones that expect to be squeezed. But I think what happened is that there's kind of like also a concern that we still have a divided government.

The president won. The Democrats got more seats in the Senate. The Republicans didn't lose the House. We're facing this fiscal cliff and it's not yet clear how we're going to get away from it.

INSKEEP: OK. So we've got multiple things going on here. One, is specific companies asking what does the election mean for me or specific investors in specific companies. The second thing is the concern about what you call the fiscal cliff. Let's remind people what that is.

WESSEL: Right. Those are the spending cuts across the board and tax increases which are going to take effect at the end of this year unless Congress and the president find some alternative way to reduce the deficit. There's going to have to be some negotiations and we don't really know how fruitful those negotiations will be. What we have seen this morning is relatively conciliatory statements from the leaders of both parties in Congress; suggestions that people are not using the most antagonistic language.

But what's hard to know is whether that's posturing or whether they're serious about compromise.

INSKEEP: This is really interesting, David Wessel of The Wall Street Journal because an election, especially one with such differing visions of economic policy introduces uncertainty which businesses don't like, makes them nervous. The uncertainty has been removed, but now there's another wave of uncertainty building up, you're saying.

WESSEL: That's right. It's because - I mean, one of the economist I spoke to this morning says it's hard to know if we really resolved the issue about the size of government, about are we going to get an agreement to raise taxes and cut benefits to reduce the benefits to reduce the deficit because the Republicans will argue, we won the House. We still have a filibuster group in the Senate. We can stop you from doing things, so you better come to our side.

The Democrats are saying, hey, we won the presidency. We got more seats in the Senate. You guys should cave to us. And in this negotiation thing, it's very hard to tell what cards people are really willing to play. It's in the early stages.

INSKEEP: Is it possible we could have another standoff like over the debt ceiling extension back in 2011?

WESSEL: It's possible, but unlikely. The analysts we talked to say the odds of that are about 1 in 5. They're does seem to be a realization that the government and the people in it, the elective politicians, look dysfunctional, look incapable of governing if we run through that again. So I don't think anybody wants that outcome, but whether they can avoid it is an open question.

INSKEEP: I just want to mention that the Dow has regained a couple points just since we've been talking. It's down 314 points.

WESSEL: We should keep talking. Maybe it will go up, Steve.

(LAUGHTER)

INSKEEP: You never know. You never know. I want to make sure also that this is all about response to the election because some of the reporting has suggested that there are also problems out of Europe that may be part of this.

WESSEL: Well, yes. It's a global market. The European economy looks increasingly worse. The European Commission came out with a bleak forecast today. But I think the big change in the world economy, there wasn't anything in Europe that really changed people's mind. I think it's right to say that something in the markets are not happy with the Obama victory and divided government.

But markets are fickle. Tomorrow, they might change their mind.

INSKEEP: David, thanks very much. I'm afraid we haven't gotten all the way back to zero, I haven't gotten all the way back to even, but thanks for taking the time that you did. We did knock about three points off the loss here today.